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39 born in the 1940s-1950s) had to rely a lot on themselves in order to accumulate wealth. Maybe it is not too surprising if they happen to be strong believers in lifecycle theory. Next, it is striking to see that in our benchmark simulations ψ x attains approximately the same levels for cohorts born in the 1970s and after as for 19 th century cohorts (ψ x ≈30%), in spite of the fact that we project b yt to stabilize below 19 th century levels (15%-16% instead of 20%- x 25%). This is due to a differential tax effect. Lifetime resources b ~ x and y~ L were computed from the simulated model, which uses observed after-tax resources, so ψ x is effectively an after-tax ratio. The aggregate labor income tax rate τ L rose from less than 10% in the 19 th - early 20 th century to about 30% in the late 20 th -early 21 st century. 71 The aggregate inheritance tax rate has remained relatively small throughout the 19 th -20 th centuries (about 5%). 72 This mechanically raises the after-tax value of inheritance resources relatively to labor resources. That is, since modern fiscal systems tax labor much more heavily than inherited wealth, the inheritance flow-national income ratio does not need to be as large as during the 19 th century in order to generate the same share of inheritance in disposable lifetime resources. For illustrative purposes, we did the same computations with the growth slowdown-rising wealth returns scenario (g=1.0%, (1-τ K )r=5.0%), under which b yt is projected to return to the 19 th century levels (see Figure 9). Because of the differential tax effect, we project that ψ x will be about 35%-40% for cohorts born in the 1970s-1980s, and as large as 50%-60% for cohorts born in the 2010s-2020s. That is, we project that cohorts born in the coming years will receive in inheritance the equivalent of 50%-60% of what they will receive in labor income during their entire lifetime, far above 19 th century levels (see Figure 11). This shows that taxes can have a strong impact on the balance between inheritance and labor resources. 7.2. Labor-based vs inheritance-based inequality Now that we have computed the inheritance share in average lifetime resources, we are in a position to put inequality back into the picture. Changes in the aggregate ratio ψ x appear matter a great deal for the study of inequality. We illustrate this point by making simple assumptions about the intra-cohort distributions of labor income and inheritance (see Table 3). The inequality of labor income has been relatively stable in France throughout the 20 th century. So we assume constant shares for the bottom 50%, the middle 40%, and the top 10% of the intra-cohort distribution of labor income for all cohorts born in 1820-2020. Wealth concentration has always been much larger than that of labor income. It was particularly high during the 1820-1913 period, when the top 10% (the “upper class”) owned over 90% of aggregate wealth, with little left for the middle 40% (the “middle class”) and the bottom 50% (the “poor”). Today, the poor still own less than 5% of 71 See Appendix A, Table A11, col.(11). Here we exclude pension-related payroll taxes from labor income taxes This follows from the fact that we include pension income into labor ressources. Otherwise the aggregate labor tax rate would exceed 50% (see col.(9)), and the inheritance/labor ressources ratio would be even larger. 72 See Appendix A, Table A9, col.(15). Inheritance taxes were included in capital income flow taxes τ K , which can be questioned. Given their low level, a direct imputation method would not make a big difference.

40 aggregate wealth. But the middle class share rose from 5% to 35%, while the upper class share dropped from 90% to 60%. Wealth concentration declined mostly during the 1914-1945 period, and seems to have stabilized since the 1950s-1960s (as a first approximation). 73 By applying these assumptions to the lifetime inheritance-labor income resources ratio ψ x plotted on Figure 11, we obtain the inequality indicators plotted on Figures 12-15. Consider first the ratio between the lifetime resources available for the top 50% successors and those available for the bottom 50% labor earners. In the 19 th century, the top 50% successors received in inheritance about 100% of what the bottom 50% labor earners received in labor income throughout their lifetime. Then this ratio dropped to 30%-40% for cohorts born in the 1900s-1930s. According to our computations, this ratio has now well recovered, and is about 90% for cohorts born in the 1970s-1980s (see Figure 12). Take again the example of the cohorts born in the 1970s. On average they will receive 450,000€ in inheritance. But the bottom half will receive almost no inheritance (40,000€), while the upper half will receive almost twice this amount (840,000€). This is roughly what the bottom 50% labor earners will receive in labor income during their entire lifetime (950,000€). 74 So we get the ratio of 88% plotted for the 1970s on Figure 12. Consider now the ratios between what top 10% and top 1% successors receive in inheritance and what bottom 50% workers receive in labor income (see Figures 13-14). Due to the decline in wealth concentration, these inequality indicators are still lower for current generations than what they used to be in the 19 th century. But they are much higher than what they used for cohorts born in 1900-1940, in spite of the fact that intra cohort distributions have remained the same. This illustrates the importance of changes in the aggregate ratio ψ x . For cohorts born between the 1900s and the 1950s, it was almost impossible to become rich through inheritance. Even if you belong to the top 10% or top 1% successors, or if you marry with such a person, the corresponding lifetime resources would be a lot smaller than those you can attain by making your way to the top 10% or top 1% of the labor income hierarchy of your time. This is what most people would describe as a “meritocratic society”. Material wellbeing required high labor income. For the first time maybe in history, it was difficult to live as well by simply receiving inheritance. In the 19 th century, the world looked very different. Top 10% inheritance resources were roughly equivalent to top 10% labor resources. Top 1% inheritance resources were almost three times as large as top 1% labor resources. I.e. top rentiers vastly dominated top labor earners. If you want to attain high living standards in the 19 th century, then inheriting from 73 For a detailed analysis of historical changes in wealth concentration in France, see Piketty et al (2006). For simplicity, we apply 1910 inherited wealth shares by fractiles to all cohorts born in 1820-1870, we apply 2010 shares to all cohorts born in 1920-2020, and we assume linear trends for cohorts born between 1870 and 1920. 74 On average, the bottom 50% labor earners earn little more than the minimum wage: their lifetime labor income roughly corresponds to the product of about 15,000€ by adult life length (about 60 years). For the sake of concreteness they can be thought of as minimum wage workers.